Broadcom V. Qualcomm: Bernstein Slams Cornyn for CFIUS Review Request

By

Tiernan Ray

March 2, 2018 8:05 a.m. ET

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In case you missed it, Stacy Rasgon of Bernstein yesterday took to task letters by U.S. representative Duncan Hunter of California and senator John Cornyn of Texas, both Republicans, that raise some objections about Broadcom’s (AVGO) attempted hostile takeover of Qualcomm (QCOM).

Qualcomm is holding it annual shareholder meeting, where there’s a showdown between it and Broadcom after some heated rhetoric this week,

Rasgon, who has an Outperform rating on Qualcomm shares, and a Market Perform rating on Qualcomm, finds the two letters to be poorly researched and ill-considered. Hunter, who wrote to President Donald Trump, and Cornyn, who wrote to Treasury Secretary Steve Mnuchin, both plead for the government to conduct a CFIUS review of the deal.

Investments by foreign companies, even minority investments, can trigger the Committee on Foreign Investment in the United States (CFIUS) review. Reuters’s Diane Bartzon Tuesday wrote that CFIUS has actually already reached out, in secret, to one of the companies, citing multiple unnamed sources.

Rasgon deems Hunter’s letter just poor in research: It mentions “expanding strategic collaborations” in China, but Rasgon notes such deals were signed by the predecessor Broadcom in 2015 before it was bought by Avago.

Cornyn's letter he deems “a more interesting take.” In it, the Senator alleges Broadcom would starve Qualcomm’s investment in 5G, which would in turn lead to China’s Huawei dominating 5G wireless technology.

But Rasgon thinks Cornyn is ignoring the role Intel (INTC) can play, and is "blind to the fact that 5G is a core piece of the franchise Broadcom is trying to purchase, hence we do not believe that 5G development will be impaired in a deal."

In sum, though not a “wonk,” Rasgon deems the appeals “very weak.” And anyway, he writes, Broadcom’s becoming an American company: It announced on November 2nd, just before it came out with its initial bid, that it would “re-domicile” to the U.S.

Broadcom shares are down $4.08, or 1.7%, at $239.23, in early trading, while Qualcomm shares are down 91 cents, or 1.4%, at $64.05.

"While it's background noise for investors in the near-term, with the News Feed overhaul and other actions that Facebook has implemented over the past few months, its clear with more 'heat in
the kitchen from the Beltway' that further modest changes to their business model around advertising and news feeds/content could be in store over the next 12 to 18 months," analyst Daniel Ives wrote.

The market for 3-D sensing in smartphones could be worth $10 billion by 2021, opines David Dai of Bernstein, which should be good news for suppliers such as Sony, AAC Technologies, Sunny Optical Technology Group, Largan Precision; Lumentum Holdings, and ams AG. Apple is leading with the iPhone, but there's a whole new wave of technology coming called "time of flight."

Twilio's "Flex" software, and Microsoft's "Teams" program are examples of how enterprise applications are changing to embrace the "wave of change" rippling through corporations, emphasizing collaborations between far-flung teams of people, write analysts at Canaccord Genuity.

Broadcom V. Qualcomm: Bernstein Slams Cornyn for CFIUS Review Request

In case you missed it, Stacy Rasgon of Bernstein yesterday took to task letters by U.

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